A Mother and her children formed an LLC with Mom contributing real estate and the children contributing nothing. Mom then gifted membership interests in the LLC to her two sons and their children. The LLC was later recapitalized with the sons taking over the LLC's management and the LLC's operating agreement amended to provide that all profit and loss and asset gain would be split equally among the sons. After the recapitalization, the Mom's (and her grandchildren's) only equity interest in the LLC was a right to distributions tied to capital account balances as they were immediately before the recapitalization. The IRS determined that Mom held a retained interest in the LLC because she and her family controlled the LLC and she held a senior equity interest because she had a right to distributions tied to her capital account balance before the recapitalization. Thus, the transfer to the sons was subject to the special valuation rules of I.R.C. Sec. 2701. The value of the taxable gift was the aggregate value of the transfer less the value of retained interests and equity interests. Chief Counsel Advice 201442053 (Jun. 17, 2014).